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Fiduciary Duty

The value of investments by public pension funds declined last quarter, widening the gap between what these funds say they will earn and what they actually earn. Pension fund managers—especially government pension fund managers—must make annual “estimates” (they’re actually politically self-serving pie-in-the-sky claims) of the market returns they expect to make on the funds under their nominal care. These WAGs determine the amount of money “the government that is affiliated with the pension fund must pay into it”.

(Aside: notice the directionality of that emphasis. The state or local government (and the Federal government with its own public pension funds) is an affiliate of the fund; the fund is not a benefit provided by the government. Which controls what, now?)

But these fiduciary money managers have been off, and not just occasionally. They’ve consistently overstated the returns they claim they’ll get compared to the returns they actually get. Currently, these worthies are claiming they’ll get a return of 7.25% on the taxpayers’ monies with which they’re entrusted and from which they’re promising the funds’ beneficiaries retirement payouts. The reality is that these worthies have only been able to get 6.49% on average over the last 20 years.

That difference—0.0076%–that’s just chump change; who cares? Us taxpayers should, and so should the funds’ retirees. On a $1 million investment—a tiny fraction of many of state-level pension funds, but a significant part of most county- and city-level pension funds, the three-quarters of one per cent difference over those 20 years works out to a more than $4 million dollar difference.